Monthly Archives: April 2013

Loooong view of 10 year UST rates.  I remember thinking the bond rally was over during the great railroad strike of 1877, nearly lost my tunic.  Luckily I went short USTs around WWII and made it all back and then some.  Patience is key.

Seriously though, interesting chart.  They say finance has the shortest memory of any discipline…

Found via CSInvesting

Senators Sherrod Brown (D, Ohio) and David Vitter (R, Louisiana) have a good op-ed in the NYT from yesterday: Make Wall Street Choose: Go Small or Go Home

Yesterday they introduced legislation that aims to end too big to fail and level the playing field for banks, big and small, by requiring sufficient capital reserves.  What a revolutionary notion…

I really hope this is genuinely good legislation that isn’t overly complex or loaded with loop holes.  Even if it is good legislation it’ll be tough to overcome Wall Street’s influence over congress.  I’m hopeful but not holding my breath.

Some excerpts:

Today, the nation’s four largest banks — JPMorgan Chase, Bank of America, Citigroup and Wells Fargo — are nearly $2 trillion larger than they were before the crisis, with a greater market share than ever. And the federal help continues — not as direct bailouts, but in the form of an implicit government guarantee. The market knows that the government won’t allow these institutions to fail.

It’s the ultimate insurance policy — one with no coverage limits or premiums.

These institutions can then borrow and lend money at a lower rate than regional banks, Main Street savings and loan institutions, and credit unions.


Unfortunately, existing capital rules are insufficient to prevent another crisis and are either too complex to administer or too easy to manipulate.


Our bill aims to end the corporate welfare enjoyed by Wall Street banks, by setting reasonable capital standards that would vary depending on the size and complexity of the institution.


Our proposal also curtails the expansion of the government safety net for Wall Street by limiting taxpayer support to traditional banking operations. Under our legislation, financial institutions would be prohibited from transferring nonbank liabilities — like derivatives, repurchase agreements and securities lending — into federally supported banks that benefit from deposit insurance. This would ensure that the government safety net protects only the commercial bank, not the risky investment-banking arms of the megabanks. If the megabanks want to remain large and complex, that’s their choice — but Americans should not have to subsidize their risk-taking. If they fail, their executives and investors — not taxpayers — should pay the price.

It’s amazing the things a low interest rate environment will make you do… including lend money to Italy and Spain for ten years at ~4%.

WSJ: European Bonds Are Defying Gravity


The bond markets and the economies of Europe’s struggling countries tell two very different stories this year: One is rallying; the other, sinking.

Bulls say the ECB’s intervention has significantly reduced the risk that Italy or Spain could default on its debts. Nick Gartside, international chief investment officer for fixed income at J.P. Morgan Asset Management, says the ECB’s pledges “provide a sort of cloak of certainty and a very important foundation.”

Others are less sanguine. “The markets are overestimating the capacity of the European Central Bank to intervene in case of need,” said Roberto Perotti, an economist at Bocconi University in Milan. He argues that Italy is essentially too big to save, even by the ECB, if it ran seriously aground.

And Italy’s weak economy raises its risk: Without economic growth, it is difficult to contain Italy’s huge public debt—the second-largest as a proportion of GDP in the euro zone, after Greece.

From Hussman’s The Endgame is Forced Liquidation

Rule o’ Thumb: When the cover of a major financial magazine features a cartoon of a bull leaping through the air on a pogo stick, it’s probably about time to cash in the chips.

Dr. Hussman goes on to warn that margin debt is nearing its 2007 high which is in turn adding fuel to the bull market fire.  A bull market built on borrowed money has a tendency to turn on a dime and force liquidation of leveraged positions – and that, in Hussman’s eyes, is the end game.

Editor’s note: I am going to make a concerted effort to provide some sources other than Hussman as this blog is starting to feel like his fan club.  No promises though – lately no one’s arguments have really resonated with me and I’m not going to just repost Bill Gross’ tweets.

Probably the best 11 minutes you’ll spend all week….


On share price volatility:

  • There have been three times Munger / Buffett have seen their holdings in Berkshire go down 50% (top tick to bottom tick)
  • Volatility is in the nature of long-term shareholding – if you’re not willing to react with equanimity to drastic declines you don’t deserve to do as well as the long-term holders that do
  • It’s a temperament, one needs to be more philosophical about market fluctuations

How political ideology caused the markets to crash:

  • Can never take all the boom and bust out of a capitalist economy but they could be considerably dampened if there were certain wise restraints
  • The folks that made a lot of money due to the lack of wise restraints channeled their resources to lobby for even less restraints – aided by ideological nuttiness that assumes because free markets work so well compared to communism, it follows that no laws at all will work even better – not true, the economy will work worse if you don’t have any wise restraints

The idiot boom and the fringes of the US Democrat and Republican Parties

  • Both parties have wings that are full of idiots – that’s the nature of the game
  • The people in the middle usually can tune out the idiots and do pretty well but every once in a while the idiots get in control
  • Compares the idiot boom (the idiot expansion of consumer credit) to going on Heroine – your life would be pleasant for a few weeks but it will ultimately totally destroy you

On Alan Greenspan

  • To his credit, of all the major figures, he’s the only one that promptly said “I’m a horse’s ass”

The trouble with Wall Street culture

  • Wall Street attracts and rewards a “locker room culture” – people that just have to win.  They’re so competitive that whatever “A” is doing they have to be better than “A”
  • They’re not very squeamish about what they have to do to win and thus are willing to do enormous damage to the rest of us in order to win

Munger and Buffett’s checklist for picking a company to invest in

  • First filter: must deal in things they’re capable of understanding
  • Next, the business must have some intrinsic characteristics that give it a durable competitive advantage
  • Vastly prefer a management in place with a lot of integrity and talent
  • Finally, no matter how wonderful it is, its not worth an infinite price – must have a price that makes sense and provides a margin of safety
  • It’s a very simple set of ideas – they’re too simple – the professional classes can’t justify their existence if that’s all they have to do – it’s so obvious, so simple, what would they have to do with the rest of the semester?

Munger’s way of thinking about buying shares

  • We have the mindset of the person buying the whole business
  • We like buying individual shares at a price that’s lower than what we think a rational person would pay if he could buy the whole business